Papers by William Megginson
Journal of international business policy, Apr 12, 2023
Sovereign wealth funds (SWFs) have over $11.5 trillion in assets under management as of February ... more Sovereign wealth funds (SWFs) have over $11.5 trillion in assets under management as of February 2023. Most of these 176 funds are sponsored by non-Western countries and their growth has made SWFs important international investors, particularly in private equity funding. We first define SWFs, then discuss their evolution into today's categories of stabilization, savings, and development/strategic funds. We discuss the documented importance of SWF funding sources -oil sales revenues versus excess reserves from export earnings -and summarize the empirical literature studying how SWFs allocate funds geographically and across asset classes. Next, we summarize empirical evidence on the impact of SWF stock investments on target firm financial and operating performance and discuss the evidence showing that the announcement of SWF investment causes target firm stock prices to rise in the short term, but the positive impact is significantly less than the positive return following large stock purchases by private investors, and the longer-term effect of SWF investment on target firms is generally negative. SWFs' recent focus on promoting ESG policies of investee companies is assessed and briefly compared to the effectiveness of other institutional investors' ESG efforts.
Social Science Research Network, 2001
This study surveys the academic and professional literature examining the privatization of stateo... more This study surveys the academic and professional literature examining the privatization of stateowned enterprises (SOEs), with a focus on empirical studies. The paper is written from the perspective of a policy-maker weighing the adoption of a national privatization program, who seeks answers to the following questions: (1) How large an impact have privatization programs actually had thus far on state involvement in different national economies?; (2) Has the decision to privatize been based on dissatisfaction with the economic performance of SOEs, and is there a viable policy alternative to divestment?; (3) Have privatization programs significantly improved the operating and financial performance of the companies divested?; (4) Once the decision to privatize is made, how do governments select the appropriate method and sequencing of selling state-owned assets?; (5) How do governments price the SOEs they wish to sell and how do they decide which potential buyers to favor?; and (6) Have investors who purchase the shares of privatized firms experienced positive short and long-term returns? Privatization has been instrumental in reducing state ownership in many countries and had a transforming effect on global stock markets, although the role of SOEs in many other countries is similar to what it was two decades ago. Those countries that have adopted large-scale privatization programs have done so primarily for different reasons: first, the conclusive evidence that privately-owned firms outperform SOEs and, second, the empirical evidence clearly shows that privatization significantly (often dramatically) improves the operating and financial performance of divested firms. Further, governments have raised significant revenues through the sale of SOEs. While the choice between privatization via public share offering versus through asset sales is still imperfectly understood, factors such as firm size, government fiscal condition, and the state of national economic development are important influences. Further, those countries which have chosen the mass (voucher) privatization route have done so largely out of necessity--and face ongoing efficiency problems as a result. Governments have great discretion in pricing the SOEs they sell, especially those being sold via public share offering, and they use this discretion to pursue political and economic ends. While raising revenue through setting high offering prices for SOEs is important to governments, many trade this objective off in favor of targeting sales to preferred buyers in direct sales and allocating shares to domestic investors (particularly SOE employees) in share offerings. On average, investors who purchase the shares of firms being privatized earn significantly positive excess returns both in the short-run (due to deliberate underpricing of share issues by the government) and over one, three, and five-year investment horizons.
Journal of International Business Studies, Sep 30, 2021
Due to a typesetting mistake, the article was published with a missing affiliation for the author... more Due to a typesetting mistake, the article was published with a missing affiliation for the author William L. Megginson. This author is affiliated with affiliation 3 and 4. This was corrected now. No other changes to the article have been made. We apologise for any inconvenience caused to our readers.
Meteor Research Memorandum, 2002
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Social Science Research Network, 2012
Is privatization in a country related to the stringency of its employment protection laws (EPLs)-... more Is privatization in a country related to the stringency of its employment protection laws (EPLs)-and, if so, how? We address these questions using privatization deals in 14 European countries over 3 decades and the changes in EPLs in a country. Using traditional difference-in-differences tests exploiting major changes and generalized difference-in-differences tests for the full sample, we find that stringent EPLs discourage privatization. For identification, we use two sets of triple-difference tests that control for country-level omitted variables using fixed effects for each country-year pair. First, using cross-sectional differences across industries in a country, we find that the effect of EPLs on privatization is disproportionately greater in industries in which separation rates and relocation rates are higher. Second, using productivity measures for US industries as an instrument, we find that the effect of EPLs on privatization is disproportionately greater in less productive industries. We would like to thank Chandra Sekhar Mangipudi for excellent research assistance and Sam Peltzman, the referee, Viral Acharya,
This study has two objectives: to estimate the impact of share issue privatizations on the growth... more This study has two objectives: to estimate the impact of share issue privatizations on the growth of world capital markets (especially stock markets), and to examine the effect privatization has had on the pattern of share ownership by individuals and institutional investors. We begin by documenting the increasing importance of capital markets, and the declining role of commercial banks, in corporate financial systems around the world. We then show that privatization programs have had a dramatic impact both on the development of non-U.S. stock markets and on the participation of individual and institutional investors in those markets. Our research documents the following key points: (1) the fraction of total domestic credit provided by the banking sector, as a percent of GDP, remained virtually constant (125 percent) between 1990 and 1998 for the world as a whole, as well as for most major country groupings. (2) During that same time period, stock market capitalization as a percent of GDP increased from 52 to 82 percent for the world as a whole, and from 56 to 95 percent for high income countries. Market capitalization is now over $39 trillion, which almost certainly exceeds world capitalization. (3) Share trading volume (value of shares traded) increased even more dramatically, from 29.0 percent of world GDP in 1980 to 79.3 percent in 1998, when it reached $22.9 trillion. (4) The total market value of privatized firms grew from less than $50 billion in 1983 to almost $2.5 trillion in 1999-roughly 10 percent of the world's aggregate market capitalization, and 21 percent of the non-U.S. total. (5) Privatized firms are the most valuable companies in seven of the ten largest non-U.S. stock markets, including the four largest, as well as in most developing countries. (6) Share issue privatizations (SIPs) have transformed international equity issuance and investment banking practices. The 25 largest--and 35 of the 39 largest--common stock issues in history have all been privatizations, and governments have raised over $700 billion through some 750 SIPs since 1977--and over $1 trillion through all privatization methods. ( ) Academic research has now clearly established that, in most countries, SIP investors earn significantly positive excess (market-adjusted) returns on the shares they purchase--over both short and long term holding periods. (6) Privatizations have dramatically increased the number of shareholders in many countries. Almost two-thirds of the 54 non-U.S. firms (67 including US companies) with over 500,000 shareholders are privatized companies, and roughly a dozen SIPs have more than 1,000,000 initial shareholders. SIPs generally have a far larger number of stockholders than do capitalization-matched private firms in the same country. (7) However, we also find that the extremely large numbers of shareholders created by many SIPs are not a stable ownership structure. For the 47 offers that initially yield over 250,000 shareholders, the total number of shareholders declines by one-third within five years. This table details the growth in the aggregate market capitalization and trading volume, in $US millions, over the 16-year period 1983-1999. Market capitalization figures are year-end values, translated from local currencies into US$ at the contemporaneous exchange rate, while trading volumes represent the total value of all trades executed during the year.
Journal of Corporate Finance, Dec 1, 2019
Using a sample of 1,593 US firms that go public between 1990 and 2007, we find that VC-backed IPO... more Using a sample of 1,593 US firms that go public between 1990 and 2007, we find that VC-backed IPOs experience less financial distress risk post-offering than do comparable non-VC-backed IPOs. After controlling for endogeneity, we find this is related to the screening done by VC-investors, who select firms with lower risk of financial distress and by VCs reducing risks when they finance portfolio firms. We find companies backed by more reputable VCs exhibit higher levels of financial distress risk even when they show superior operating performance, due to their highly levered capital structure and investment in relatively illiquid assets.
Social Science Research Network, 2009
French law mandates that employees of large publicly listed companies be allowed to elect two typ... more French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company have the right to elect one director whenever they hold at least 3% of outstanding shares. These two rights have engendered substantial employee representation on the boards of over one-quarter of the largest French companies. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2005, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders unambiguously increase firm valuation and profitability, but do not significantly impact corporate payout (dividends and share repurchases) policy or board organization and performance. Directors elected by employees by right significantly reduce payout ratios, increase overall staff costs, and increase board size, complexity, and meeting frequency-but do not significantly impact firm value or profitability. Employee representation
HAL (Le Centre pour la Communication Scientifique Directe), Jan 18, 2006
Privatization is one of the major economic phenomena in recent economic history. This paper summa... more Privatization is one of the major economic phenomena in recent economic history. This paper summarizes empirical research on the effect of privatization on the performance of privatized firms and on the society. The extant evidence from privatizations in many developed and developing shows that privatization usually results in an increased productivity and positive effects on the society. The effect of privatization depends however on economic institutions in place, in particular on rule-of-law, competition, hard budget constraints, quality of governance and regulation. We pay a special attention to the cases of Russia and China and show that their experience is consistent with the conventional wisdom once one accounts for an appropriate counterfactual.
whose insightful comments and suggestions greatly helped improve this paper. We thank Simeon Djan... more whose insightful comments and suggestions greatly helped improve this paper. We thank Simeon Djankov and Caralee McLeish for providing access to their creditor rights data. Rong Leng provided excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Sciences Po publications, 2006
Privatization is one of the major economic phenomena in recent economic history. This paper summa... more Privatization is one of the major economic phenomena in recent economic history. This paper summarizes empirical research on the effect of privatization on the performance of privatized firms and on the society. The extant evidence from privatizations in many developed and developing shows that privatization usually results in an increased productivity and positive effects on the society. The effect of privatization depends however on economic institutions in place, in particular on rule-of-law, competition, hard budget constraints, quality of governance and regulation. We pay a special attention to the cases of Russia and China and show that their experience is consistent with the conventional wisdom once one accounts for an appropriate counterfactual.
We nd that the major determinants of the payout premium of rms after privatization are improved r... more We nd that the major determinants of the payout premium of rms after privatization are improved rm operating performance and a prevalence of agency costs which are mitigated by higher pay outs. We examine up to 82,612 rm-years (up to 409 privatized and 6,193 non-privatized rms) across 26 countries. The privatized rm payout premium increases substantively in civil law countries and is inversely related to the proportion of closely held shares. It also increases with rm earnings, eciency and growth opportunities. Our main ndings do not materially dier in respect to the international variation over time of the dividend tax penalty and across the state of economic development in the country of rm privatization but they are not evident in industry sectors with high levels of regulation. We therefore provide an economic rationale for the higher pay outs of privatized rms.
Global Finance Journal, 2019
The ability of banks to direct financial flows towards the real economy has been affected both by... more The ability of banks to direct financial flows towards the real economy has been affected both by global and sovereign-debt crises, and by the reaction of regulators seeking to avoid shock transmission and risk contagion. In fact, the historically low interest rates resulting from monetary policy actions seem incapable of fully restoring financial markets to pre-crisis conditions. The low
Foundations and Trends® in Finance, 2017
This study summarizes the economic and political developments relating to privatization, state ca... more This study summarizes the economic and political developments relating to privatization, state capitalism, and state ownership of business since 2000 and then surveys the extensive recent research examining these issues empirically. Through the early 21 st century, there was an unambiguous global trend towards reducing government ownership of business enterprise, but this trend has since at least been slowed,
SSRN Electronic Journal, 2017
The global Islamic finance industry is estimated to be worth approximately US$1.4 trillion, and h... more The global Islamic finance industry is estimated to be worth approximately US$1.4 trillion, and has grown much faster than conventional finance over the past four decades. Although 80% of this industry is concentrated in the Middle East, North Africa, East Asia, and the Pacific, it is active in 59 countries across all continents. Formally launched in the 1970s, this industry has deep roots in Islamic law (Sharia) and offers many implications for modern finance. In this survey, we explore key aspects of Islamic financing through banking, capital markets, and private contracting. Our objective is to attract the attention of academic researchers, regulators and standard setters, and providers/users of Islamic funding to the critical issues related to the efficiency of Islamic finance.
SSRN Electronic Journal, 2017
This article details major privatization deals executed during 2015 and 2016 and surveys trends s... more This article details major privatization deals executed during 2015 and 2016 and surveys trends shaping the privatization landscape worldwide. We document several important facts, including the following: (1) Governments raised a record $319.9 billion (€289.5 billion) through privatization sales worldwide during 2015, substantially more than the $218.8 billion (€166.5 billion) total for 2014 and easily exceeding the previous record of $265.2 billion (€184.3 billion) set in 2009; (2) The global value of privatizations during 2016, $266.4 billion (€241.4 billion) is the second highest on record; (3) Share issue privatizations (SIPs) accounted for over 95% of the total number of privatizations during 2015, and 87% of the total value while auctions, targeted stake sales, convertible bond offerings, and asset sales accounted for the rest. The corresponding figures for 2016 are 93% and 81%, respectively; (4) China was, by far, the leading privatizing country during both 2015 and 2016, raising an astonishing $173.2 billion (€158.4 billion) during 2015, and $148.0 billion (€134.0 billion) during 2016. These Chinese totals represented over half of the worldwide total for both 2015 (54.1%) and 2016 (55.6%). The United Kingdom was a distant second-leading privatizing country during 2015 [13 deals, worth $34.8 billion (€32.1 billion)], while Australia [5 deals worth $25.7 billion (€23.3 billion)] took second place during 2016; (5) The $87.1 billion (€80.0 billion) and $37.8 billion (€34.0 billion) raised by EU governments during, respectively, 2015 and 2016 represented 27.2% and 14.2% of the respective global annual totals. Both 2015 and 2016's values are far below the long-run average EU share of 37.5% of the global value of privatizations, with 2016 hitting a historic low; (6) There were a relative handful of failed, withdrawn, and cancelled specific privatization sales during 2015 and 2016, but the political turmoil associated with the United Kingdom's surprisingly successful "Brexit" vote in June-plus global uncertainty leading up to the US presidential election in November-forced a pause in a number of European privatization programs, especially Britain's; and (7) The large number (903) and value [$586.3 billion (€530.9 billion)] of privatizations executed during 2015 and 2016, coupled with several massive planned sale announcements-especially Saudi Aramco's mooted $100 billion IPO in 2017 or early 2018, suggests that the massive global privatization wave that began in 2012 continues unabated.
ABSTRACT Summarises each chapter of the third edition of 'Corporate Finance' (Bis... more ABSTRACT Summarises each chapter of the third edition of 'Corporate Finance' (Bishop, Crapp, Faff and Twite) and highlights key concepts. Provides worked examples and additional problems and solutions. A feature of this new edition is a quiz section for reviewing basic knowledge before proceeding to application problems. Includes a set of financial mathematical tables. Freeman lectures at the University of Technology, Sydney, and Twite at the Australian School of Management.
The Financial Economics of Privatization, 2005
This chapter examines the impact of share issue privatizations (SIPs) on the growth of world capi... more This chapter examines the impact of share issue privatizations (SIPs) on the growth of world capital markets, especially stock markets. It also studies privatization’s impact on the pattern of share ownership by individuals and institutional investors. It begins by documenting the increasing importance of capital markets and the declining role of commercial banks in corporate financial systems around the world. It shows that privatization programs, particularly those involving public share offerings, have had a dramatic impact both on the development of non-US stock markets and the participation of individual and institutional investors in those markets. The components of a nation’s corporate governance system are described, and how privatization programs can promote the development of an effective corporate governance system is discussed.
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Papers by William Megginson